Corporation Law 3E

RULES GOVERNING REDEEMABLE AND TREASURY SHARES (1982) The following rules governing redeemable shares (Section 8, CCP) and treasury shares (Section 9 and 41, CCP) are hereby promulgated: SECTION 1. General Provisions. The outstanding capital stock of a corporation, including unpaid subscriptions, shall constitute a trust fund held by the corporation for the benefit of its creditors which shall not be returned to the stockholders by repurchase of shares or otherwise, except in the manner as provided for under the Corporation Code and these rules. cdphil SECTION 2. Definitions. The following terms shall have the respective meanings when used in these rules: a. Treasury shares Treasury shares are shares of stock which have been issued and fully paid, but subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other lawful means. b. Redeemable shares. Redeemable shares are shares of stock issued by a corporation which said corporation can purchase or take up from their holders as expressly provided for in its articles of incorporation and certificates of stock representing said shares. c. Unrestricted retained earnings. Unrestricted retain earnings refer to the undistributed earnings of the corporation which have not been allocated for any managerial, contractual or legal purposes and which are free for distribution to the stockholders as dividends. d. Sinking Fund. Refers to a fund set up by the corporation where cash is gradually set aside in order to accumulate the amount necessary to meet the redemption price of redeemable shares at special dates in the future. SECTION 3. Redeemable Treasury Shares.

corporation, in accordance with the provision expressly provided for in its articles of incorporation and certificates of stock representing said shares of the corporation, in accordance with the provisions expressly provided for in its articles of incorporation and certificates of stock representing said shares; b. When the shares are reacquired to effect a decrease in the capital stock of the corporation as approved by the Securities and Exchange Commission; c. When the share are reacquired by a close corporation pursuant to the order of the Securities and Exchange Commission acting to arbitrate a deadlock as provided for under Section 104 of the Corporation Code of the Philippines. 2. Treasury shares do not revert to the unissued shares of the corporation but are regarded as property acquired by the corporation which may be reissued or sold by the corporation at a price to be fixed by the Board of Directors; provided, however, that in the case of redeemable shares reacquired, the same shall be considered retired and no longer issuable, unless otherwise provided in the Articles of Incorporation. 3. In the case of a close corporation, any stockholder may, for any reason, compel the corporation to purchase his shares at a value not less than their par or issued value, provided that the corporation has, after the withdrawal of the stockholder, sufficient assets in its books to cover its debts and liabilities exclusive of capital stock. Cda SECTION 4. Retained Earnings.

1. The amount of unrestricted retained earnings equivalent to the cost of the treasury shares being held, other than those acquired in accordance with the exceptions provided in Section 3(1) of these rules, shall be restricted from being declared and issued as dividends. 2. The dividend restriction on retained earnings on account of the treasury shares being held shall be lifted only after the treasury shares causing the restriction are reissued or retained. Retirement of treasury shares shall be effected by decreasing the capital stock of the corporation in accordance with Section 38 of the Corporation Code of the Philippines for the purpose of eliminating the treasury shares.

1. No corporation shall redeem, repurchase or reacquire its own shares, of whatever class, unless it has an adequate amount of unrestricted retained earnings to support the cost of the said shares, except: a. When the shares are reacquired in the redemption of redeemable shares of the corporation or pursuant to the conversion right of convertible shares of the

Corporation Law 3E

SECTION 5.

Other Provisions.

1. A corporation may reacquire its own shares for a legitimate corporate purpose or purposes in accordance with these rules, including but not limited to the following cases: a. To eliminate fractional shares arising out of stock dividends;

and such other sanctions as provided for under Section 144 of the Corporation Code of the Philippines. SECTION 7. Effectivity of Rules.

These rules shall take effect fifteen (15) days after their publication in two (2) newspapers of general circulation in the Philippines. prcd (SGD.) MANUEL G. ABELLO Acting Chairman Approved: (SGD.) CESAR E.A. VIRATA Minister of Finance CIRCULAR NO. 7 December 27, 1982

b. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription, in a delinquent sale, and to purchase delinquent shares sold during said sale; and c. To pay dissenting or withdrawing stockholders entitled to payment of their shares under the provisions of the Corporation Code of the Philippines. 2. Treasury shares shall have no voting rights as long as such stocks remains in treasury. 3. Treasury shares may be declared as property dividend to be issued out of the retained earnings previously used to support their acquisition, provided that the amount of the said retained earnings has not been subsequently impaired by losses. Any declaration and issuance of treasury shares as property dividend shall be disclosed and properly designated as property dividend in the books of the corporation and in its financial statements. 4. All corporations which have issued redeemable shares with mandatory redemption features are required to set up and maintain a sinking fund. The fund shall be deposited with a trustee bank and not be invested in risky or speculative ventures. 5. Redeemable shares may be redeemed, regardless of the existence of unrestricted retained earnings, provided that the corporation has, after such redemption, sufficient assets in its books to cover debts and liabilities inclusive of capital stock. SECTION 6. Violation of these Rules.

Any violation of these rules shall be penalized by a fine of not less than One Thousand (P1,000.00) Pesos or not more than Ten Thousand (P10,000.00) Pesos